How new expressway will further hurt Kenya’s SGR fortunes

Kenya’s Standard Gauge Railway is set to face stiffer competition from the road network after the government revived plans to build an expressway that will run side by side with the railway.

Three firms are now competing for a tender to build the 473-km Nairobi-Mombasa Expressway, which will offer an uninterrupted movement of vehicles between the two cities.

The Kenya National Highway Authority (KeNHA) says that Korean Overseas Infrastructure and Development Corporation (KIND) is the latest firm to express interest in the multi-billion tender after it submitted a Privately Initiated Investment Proposal (PIIP) for the development of the highway.

The firm will compete for the tender with American firm Bechtel Executive, which is also eyeing the lucrative multi-billion shilling tender but is now in a joint partnership with a US Capital Investment Company Everstrong Capital.

“The Korean Overseas Infrastructure and Development Corporation (KIND) presented a Pre-Feasibility Studies Report for the development of the Highway based on a PPP model,” said KeNHA director–general Kungu Ndungu.

“Bechtel is also still working on the best Public Private Partnership (PPP) structure for the project. Everstrong Capital) has also expressed interest in developing the Corridor in partnership with Bechtel.”

This comes at a time when the SGR is already fighting for a life of its own, following President William Ruto’s order to revert port operations to Mombasa.

The return of the operations has handed trucking companies a fighting chance to wrestle the cargo business from the SGR since the order now means that importers will have free will to choose between road and railway.

Before last week’s order, importers were being forced to use the railway following a take or pay deal between the SGR financiers and the Kenyan government. This saw the government move in to shield the railway from the truckers who have the advantage of the last mile and are cheaper compared to the railway line.

But as SGR prepares to compete the trucks for the cargo business, the new expressway will tilt the competition in favour of trucks since, besides the cost and quick turnaround advantage for short hauls, they will be able to compete on speed as well.

The expressway has however also faced a number of false starts, as the government shops for the best candidate to complete the works.

The Business Daily could not immediately establish why the tender to construct the road was attracting new players bearing in mind that American contractor Bechtel had been tapped by the Kenyan government to build the road in 2018.

But sources familiar with the details say that the state may have fallen out with Bechtel who has always insisted on building the road only if the government will take a loan for the project.

The firm last year rejected Kenya’s offer to construct the road and recover its costs from charging motorists toll fees settling on a model where the state pays it for building the road.

Bechtel argues that the alternative PPP model where the contractor sources funds would cost five times more at $15 billion and take much longer to complete.

But Transport Cabinet Secretary James Macharia maintained the PPP model, which will see the infrastructure transferred to the State, was a cheaper option for taxpayers.

“We do not want to take more debt if the private sector can do the job. National Treasury team through the PPP unit and their advisers have done the math, and preference is for PPP option,” Mr Macharia said in a past interview with the Business Daily.

The toll model has been hailed as a solution to the road financing problem since it takes the pressure off a country to accumulate public debt.

Many countries, including the UK, India, Canada, France Nigeria and South Africa, have adopted the toll model to fund their road infrastructure.

Toll fees were introduced in Kenya in the late 1980s but were scrapped in the mid-1990s in favour of the roads maintenance levy currently charged at Sh18 per litre of petrol and diesel.

Kenya is seeking to maintain the pace of spending on new infrastructure with funding from private backers while reducing borrowings and budget deficits.

Kenya will spend Sh1.36 trillion annually in the current financial year that started in July for debt repayment, up from Sh1.15 trillion in the last fiscal period.

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